The second wave of pandemic in India has brought nervousness among FPIs which is visible in the flow numbers for this week.
Foreign investors have pulled out Rs 5,936 crore from the Indian equities in the first week of May due to worries over the intense second wave of coronavirus outbreak and its adverse effects on the economy.
According to the depositories’ data, foreign investors had pulled out Rs 9,659 crore in April after investing money in the preceding six months.
Foreign portfolio investors (FPIs) withdrew a net sum of Rs 5,936 crore from Indian equity markets during May 3-7.
Since October, FPIs had been infusing money in equities until April’s outflow. They invested over Rs 1.97 lakh crore in equities during October 2020 to March 2021. This sums up to a net investment of Rs 55,741 crore in the first three months of this year.
Further redemptions are expected due to fears of COVID-19 persisting among overseas investors.
The pullback by FPIs is directly related with a sharp rise in COVID-19 cases in India, state-wide lockdowns and the consequent slowdown in growth. A weak currency added to the outflows by FPIs.
There yet another angle to the pullback that the recent withdrawal could be due to profit booking.
FPIs had started investing heavily around April 2020. Post that the markets have recovered remarkably, and the stocks picked by them have given good returns over the same period.
According to this viewpoint, many FPIs are starting to book profits they have made over the last one year and that being the reason behind the outflow of money from Indian equities.
At the same time, FPIs have put in net sum of Rs 89 crore in the debt securities in the first week of May after selling net amount of Rs 118 crore in the preceding month.Rs 89 crore in the debt securities in the first week of May after selling net amount of Rs 118 crore in the preceding month.
There is a change in outlook for interest rates as FPI flows in debt have turned positive due to expectations of slower economic recovery, a continued accommodative monetary policy stance and the launch of G-SAP 1.0 by the RBI.
Overseas investors have so far this year put in a net sum of Rs 40,146 crore in equities and pulled out net amount of Rs 15,547 crore from debt securities.Rs 40,146 crore in equities and pulled out net amount of Rs 15,547 crore from debt securities.
Rising COVID cases in the country and extension of lockdowns could have negative effects on the economy.
As there is uncertainty over the degree of impact of the second wave of COVID-19 crisis on the economy, it could continue to keep foreign investors at bay. FPIs might be forced to adopt a wait and watch approach for a relatively longer period.
Unless and until the situation comes under control, this can also drive them away from Indian equities or bring them back only when there are visible signs of the scenario improving.
FPIs would continue to be focused on economic numbers and how soon India gains its economic momentum back. Any further damage on that front can dent sentiments deeper and adversely impact foreign flows.
The only hope being the virus spread will be controlled soon as vaccination is open for all adults. If we look at last year’s pattern, investment picked up massively as soon as the case numbers started going down.
Smrutirekha Bhoi